DJIA            8080.52    -28.32      (-0.35%) 
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 Nasdaq          1734.05     -5.17      (-0.30%) 
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 30-Year Bond   106 7/30    +25/32  5.09% Yield 
 

HEROES

Defense contractor Lockheed Martin <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LMT)") else Response.Write("(NYSE: LMT)") end if %> gained $3 3/4 to $102 3/4 on news that the Clinton administration will ask Congress to approve an additional $1 billion to improve U.S. military readiness. The extra money, which the Pentagon calls "readiness spending," would go toward operations and maintenance. Yesterday, the House of Representatives approved a $250.5 billion defense package that includes money for buying weapons systems from Bethesda, Maryland-based Lockheed Martin. About $482 million and six C-130J transport planes were added to the administration's proposal of $63 million and one C-130J aircraft. But negotiators cut $376 million in funding for Lockheed's Theater High Altitude Area Defense system, leaving a budget of $445 million for the system. Defense electronics company Raytheon Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RTN.B)") else Response.Write("(NYSE: RTN.B)") end if %> picked up $2 7/16 to $53 13/16.

News that they have made "the list" boosted the shares of several companies today. Bank and thrift holding company Union Planters Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: UPC)") else Response.Write("(NYSE: UPC)") end if %> added $3 3/4 to $51 1/8 on news it will replace NationsBank <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NB)") else Response.Write("(NYSE: NB)") end if %>, which is merging with BankAmerica <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BAC)") else Response.Write("(NYSE: BAC)") end if %>, in the Standard & Poor's 500 Index after the close of trading Wednesday. Enterprise software company PeopleSoft <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PSFT)") else Response.Write("(Nasdaq: PSFT)") end if %>, which will take the place of another bank, First Chicago NDB <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FCN)") else Response.Write("(NYSE: FCN)") end if %>, which is merging with Banc One <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ONE)") else Response.Write("(NYSE: ONE)") end if %>, moved up $2 3/16 to $33 1/2. Coal, hydropower, natural gas, and oil power generator AES Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AES)") else Response.Write("(NYSE: AES)") end if %>, which will replace U.S. Surgical Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: USS)") else Response.Write("(NYSE: USS)") end if %>, which will be acquired by Tyco International <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TYC)") else Response.Write("(NYSE: TYC)") end if %>, jumped $4 3/4 to $38 1/4. And BMC Software <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BMCS)") else Response.Write("(Nasdaq: BMCS)") end if %>, which will take the place of Ahmanson & Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AHM)") else Response.Write("(NYSE: AHM)") end if %>, advanced $2 5/8 to $59 1/16.

QUICK TAKES: Software giant Microsoft Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MSFT)") else Response.Write("(Nasdaq: MSFT)") end if %> gained $1 9/16 to $112 7/8 as a study by International Data Corp. showed that the company had surpassed IBM <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IBM)") else Response.Write("(NYSE: IBM)") end if %> in new sales of network e-mail software in the first half of this year. Microsoft's Exchange program garnered 5.7 million new users worldwide versus the 5.3 million won by IBM's Lotus Domino/Notes... Database software developer Oracle Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ORCL)") else Response.Write("(Nasdaq: ORCL)") end if %> picked up $15/16 to $29 1/16 as it began shipping Oracle Lite 3.5 for use in hand-held computers... Coca-Cola <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: KO)") else Response.Write("(NYSE: KO)") end if %> fizzed up $1 7/16 to $58 11/16. Donaldson, Lufkin & Jenrette Securities said the cloud of uncertainty has been removed from the beverage company.

Internet multimedia company Macromedia Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MACR)") else Response.Write("(Nasdaq: MACR)") end if %> rose $1 7/8 to $16 7/8 after announcing that its Flash and Shockwave players will be included on America Online's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AOL)") else Response.Write("(NYSE: AOL)") end if %> AOL 4.0 CD-ROM... Mobil Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MOB)") else Response.Write("(NYSE: MOB)") end if %> was pumped up $1 9/16 to $77 13/16 after the oil company said it restarted its refinery in Chalmette, Louisiana, which had been closed due to Hurricane Georges... Men's sportswear designer Nautica Enterprises <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NAUT)") else Response.Write("(Nasdaq: NAUT)") end if %> gained $1 1/4 to $17 1/2 after reporting fiscal Q2 EPS of $0.46, up from $0.36 in the same year-earlier period and higher than analysts' mean EPS estimate of $0.43... U.K. phone company Cable & Wireless <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CWP)") else Response.Write("(NYSE: CWP)") end if %> American depositary receipts rose $1 3/4 to $30 as the company told analysts that its international mobile phone businesses had strong growth for the year.

BellSouth Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BLS)") else Response.Write("(NYSE: BLS)") end if %> rang up $3 3/4 to $76 7/16 as the regional phone company declared a regular quarterly dividend of $0.36 a share payable Nov. 2... Satellite to cable TV broadcaster Hungarian Broadcasting Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HBCO)") else Response.Write("(Nasdaq: HBCO)") end if %> transmitted a gain of $1 3/16 to $6 3/4 after yesterday announcing that its affiliate SZIV TV Rt has won approval for a national satellite broadcasting license for its satellite operations in Hungary... Blood pressure monitoring devices maker Medwave Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MDWV)") else Response.Write("(Nasdaq: MDWV)") end if %> pulsed up $2 1/4 to $13 after announcing a "technical evaluation agreement" with an interested party" for its hand-held blood pressure monitor. Medwave will be paid $1.5 million to not discuss the technology with other parties for six months.

High-performance audio systems company Boston Acoustics <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BOSA)") else Response.Write("(Nasdaq: BOSA)") end if %> blasted ahead $1 3/4 to $26 after announcing an international sales and marketing alliance with home audio components maker Parasound Products Inc. of San Francisco... Real estate investment and management services company LNR Property Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LNR)") else Response.Write("(NYSE: LNR)") end if %> leapt $1 3/16 to $19 1/2 after last night reporting fiscal Q3 EPS of $0.52, up from $0.32 in the same prior-year quarter and two cents ahead of analysts' expectations of $0.50.

Community-based bank First Mutual Savings Bank <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FMSB)") else Response.Write("(Nasdaq: FMSB)") end if %> jumped $2 1/2, or 20.41%, to $14 3/4 after announcing plans to buy back up to 150,000 shares, or 3.5% of the company's outstanding stock... Glenway Financial Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GFCO)") else Response.Write("(Nasdaq: GFCO)") end if %> gained $1/2 to $20 after announcing it will be acquired by Fidelity Financial of Ohio <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FFOH)") else Response.Write("(Nasdaq: FFOH)") end if %> in a $48 million stock swap, forming a savings bank in southwestern Ohio with 17 branches and total assets of $835 million. Fidelity added $1 to $15.

GOATS

Israeli medical device maker ESC Medical Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ESCMF)") else Response.Write("(Nasdaq: ESCMF)") end if %> was sliced $8 1/8 to $6 1/2 after saying it will report fiscal Q3 EPS between $0.20 and $0.25 on a 15% sequential decline in revenues. The Street had been expecting EPS of $0.50 in the period. The company issued the warning late yesterday after its shares fell nearly 33% following an earnings estimate reduction by Salomon Smith Barney, which was apparently given an early heads-up on the negative situation. Perhaps miffed by being left out of the analyst loop, both Goldman Sachs and NationsBanc Montgomery Securities downgraded ESC today. The company blamed the shortfall on lower sales in South America and delayed purchasing decisions by other foreign clients, who are second-guessing the current need for ESC's varicose veins and hair removal devices given the recent spate of global financial troubles.

Acute care hospitals and local and regional healthcare systems operator Quorum Health Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: QHGI)") else Response.Write("(Nasdaq: QHGI)") end if %> dropped $5 7/8 to $15 13/16 after saying in a federal filing that the government may start legal proceedings against the company next Monday based on a five-year inquiry into Quorum's Medicare billing procedures. Quorum said it has "cooperated fully with the government and intends to continue to do so." Like the creature in the movie Alien that occupied its host's body undetected only to unexpectedly pop out of the victim's chest later, the government's probe of Quorum's practices had been considered dormant, if not outright dead. But with the beast finally out and wrecking havoc on Quorum's share price, whiffs of the Feds' investigation and subsequent indictments at hospital operator Columbia/HCA Healthcare Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: COL)") else Response.Write("(NYSE: COL)") end if %> last year are already beginning to foul the air around Quorum.

QUICK CUTS: Shaving products and batteries maker Gillette <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: G)") else Response.Write("(NYSE: G)") end if %> was nicked $2 1/2 to $37 1/2 after saying the recent economic turmoil in emerging markets and roll-out costs from its new Mach3 razor will result in fiscal Q3 EPS (excluding a restructuring charge) of around $0.30, missing the First Call mean estimate of $0.40. For more details, click here... TV and radio network operator CBS Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CBS)") else Response.Write("(NYSE: CBS)") end if %> fell $2 1/2 to $23 1/4 after Morgan Stanley Dean Witter reduced the firm's cash flow estimates for fiscal Q3 and Q4 on worries of a slowdown in advertising revenues... Computer products direct marketer PC Connection <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PCCC)") else Response.Write("(Nasdaq: PCCC)") end if %> slid $10 11/16, or 51.8% to $9 15/16 after pre-announcing fiscal Q3 EPS between $0.18 and $0.22, missing the Street's mean estimate of $0.24.

FirstPlus Financial Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FP)") else Response.Write("(NYSE: FP)") end if %> fell another $3 3/16 to $11 7/8 after General Electric's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GE)") else Response.Write("(NYSE: GE)") end if %> GE Capital Corp. unit said yesterday that it was not interested in buying the home equity lender, while leaving the door open for a possible equity investment down the road... Goodyear Tire & Rubber Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GT)") else Response.Write("(NYSE: GT)") end if %> was slashed $3 3/4 to $52 after warning that its fiscal Q3 operating EPS will be between $1.15 and $1.20 compared with $1.16 a year ago and shy of the Street's mean estimate of $1.26... Paramount Pictures and MTV Networks parent Viacom Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: VIA and VIA.B)") else Response.Write("(AMEX: VIA and VIA.B)") end if %> lost $6 to $56 3/4 after Merrill Lynch reduced its long-term rating to "accumulate" from "buy." Deutsche Bank Securities also lowered its rating to "accumulate" from "buy."

Fiber optic network operator Qwest Communications International <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: QWST)") else Response.Write("(Nasdaq: QWST)") end if %> slumped $15/16 to $34 5/8 after the Federal Communications Commission struck down the firm's proposed marketing alliances with Ameritech <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ATI)") else Response.Write("(NYSE: ATI)") end if %> and U.S. West <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: USW)") else Response.Write("(NYSE: USW)") end if %> on the grounds that the arrangements violated the Telecommunications Act of 1996... Dynamic random access memory (DRAM) chip maker Micron Technology <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MU)") else Response.Write("(NYSE: MU)") end if %> lost $2 1/4 to $31 5/8 after reporting a fiscal Q4 loss of $0.42 per share, which was not quite as bad as the $0.54 per share loss expected by the Street. Meanwhile, Micron Electronics <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MUEI)") else Response.Write("(Nasdaq: MUEI)") end if %>, the PC direct marketer that is 60% owned by Micron Technology, rose $1 3/16 to $18 1/8 after posting Q4 earnings (excluding a gain) of $0.08 per share, beating estimates by $0.06.

Agricultural genetics and seed development firm Pioneer Hi-Bred International <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PHB)") else Response.Write("(NYSE: PHB)") end if %> was cut down $6 5/8 to $25 1/2 after saying it will not raise the prices of its corn and soybean seed products in calendar year 1999, due to the "challenging economic conditions" faced by U.S. and Canadian farmers... Mall-based specialty gold jewelry retailer Piercing Pagoda <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PGDA)") else Response.Write("(Nasdaq: PGDA)") end if %> was sliced $2 13/16 to $11 1/16 after saying it expects a fiscal Q2 loss between $0.15 and $0.20 per share, which is worse than the $0.01 per share loss expected by the Street... Children's clothing marketer Gerber Childrenswear <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GCW)") else Response.Write("(NYSE: GCW)") end if %> was ripped $2 13/16 to $7 15/16 after pre-announcing fiscal Q3 EPS between $0.17 and $0.21, missing analysts' estimates of $0.34... Home builder and financial services firm U.S. Home Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: UH)") else Response.Write("(NYSE: UH)") end if %> was nailed $2 7/8 to $29 5/16 after warning that its fiscal Q3 earnings will fall short of the First Call mean estimate of $1.10 per share due, in part, to a shortage of construction workers.

Gene transcription technology firm Ligand Pharmaceuticals <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LGND)") else Response.Write("(Nasdaq: LGND)") end if %> dropped $1/2 to $11 after Ireland's Elan Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ELN)") else Response.Write("(NYSE: ELN)") end if %> said it will take an initial 8% stake in the company and give Ligand the exclusive U.S. and Canadian license for its Morphelan pain management drug... Health care and death care firm Hillenbrand Industries <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HB)") else Response.Write("(NYSE: HB)") end if %> bit the dust and dropped $5 3/8 to $53 after reporting fiscal Q3 EPS of $0.60 (excluding gains and charges) and announcing a restructuring of some of its European operations, which will include plant closings and relocations... Gold mining company Newmont Gold Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NGC)") else Response.Write("(NYSE: NGC)") end if %> slid $2 9/16 to $24 3/16 after Newmont Mining Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NEM)") else Response.Write("(NYSE: NEM)") end if %> said it will acquire the remaining 6.25% stake in the company it does not already own in a stock swap. Newmont Mining fell $1 1/16 to $23 11/16.

FOOL ON THE HILL
An Investment Opinion
by Dale Wettlaufer

Good Times on Borrowed Money

Long-Term Capital Management. Ah, what a delicious irony in the name of the fund involved in the biggest trading blowup in the U.S. this year. You couldn't come up with a trading strategy that is more short-term oriented than a black box driven $100 billion hedge fund. Let's see. What are some bad ideas I can come up with? A thousand-year Reich might be one. Or a long-term investing strategy that is based on leverage of 25-to-1 and the premise that all risks are knowable and controllable might be another. We know why the first was a really bad idea. Why the second?

First, there's the leverage issue. We've dealt many times before with the mistaken premise that a high return on equity (ROE) is an absolute good. And maybe we shouldn't go so lightly as before on those that promulgate that idea, because the Long-Term Capital episode is a good example of why that premise is mistaken. Using a model that is a great financial jackknife and with which readers of this column are familiar, the idea that all high ROE enterprises are not good can be explained this way:

ROE = Asset turnover * margin * leverage.
Asset turnover = revenues / average assets
Margin = net income / revenues
Leverage = Average assets / average shareholders' equity

Expressing the idea above in another way, Return on Equity =

Revenues       Net Income     Avr. Assets 
 ----------- * ------------ * ------------- 
 Avr. Assets     Revenues      Avr. Equity

CONFERENCE CALLS

Please see the Motley Fool's Conference Calls page for call information and links to synopses.

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Contributing Writers Yi-Hsin Chang (TMF Puck), a Fool Brian Graney (TMF Panic), Fool Two Alex Schay (TMF Nexus6), Fool, too Dale Wettlaufer (TMF Ralegh), Final Fool Editing Brian Bauer (TMF Hoops), another Fool Bob Bobala (TMF Bobala), a Fool's Fool Jennifer Silber (TMF Amused), Fool at last